What Would You Have the President Do? Part II, Getting to Full Employment

Responding to a Post at Naked Capitalism by Michael Hudson with some additions by Yves Smith, a commenter, objecting to the criticism of the President’s Knox College speech, issued the challenge ”What would u have him do?” in connection with his promised effort to restore prosperity to the middle class and the poor. In this series I’m giving my answer to that question. In Part I, “Necessary First Moves,” I offered and described two of these. Ending the filibuster, and using High Value Platinum Coin Seigniorage (HVPCS) to fill the Treasury General Account (TGA) with $60 Trillion in reserves.

The purpose of the first was to prepare the way for substantive policies by removing the Republican minority’s power to tie up legislation. The purpose of the second, was to neutralize austerian fiscal responsibility justifications for subjecting every policy proposal to a deficit neutrality test, and for opposing deficit spending on grounds that it adds to the national debt and imposes heavy risks that the bond markets will demand very high interest rates on US debt. Of course, HVPCS gets rid of both the debt and bond market concerns for good.

Neither of these two policies, however, addresses substantive needs such as creating and maintaining full employment. This post is about the policies for getting to full employment I want the President to propose and try to implement. All of these policies have been previously proposed by MMT economists including Warren Mosler,Randy Wray,Bill Mitchell,Stephanie Kelton, and others.

Full payroll tax holiday

The full payroll tax holiday for both employers and employees would give a couple, each earning $50,000 in wages, about $650.00 per month in increased consumption power. It would last until full employment in the private sector is reached, when the tax would be fully or partly re-imposed, provided that demand leakages to domestic savings and the trade deficit were small enough to warrant such a re-imposition.

This measure would be an enormous immediate augmentation to consumption power, would be felt immediately, and would have a fiscal multiplier of at least 1.3 for every Federal Dollar expended. It would be implemented through the Government crediting SS trust fund accounts with the amount of the forgiven FICA taxes, and would directly add about $650 B of GDP to the private sector, provided it took a year to reach full employment. If it took less time than that, then, of course, the addition to the private sector would be less than that amount.

The President should get legislation introduced to do this. With HVPCS, there is no reason not to, since it would be clear that the Government can always generate the reserves to pay for SS regardless of the balance in the so-called “trust fund.”

We can’t look at SS and our other entitlements in isolation. I want the President to get Congress to pass legislation implementing FDR’s economic bill of rights, and expanding all the ENTITLEMENTS in the American social safety net; now the stingiest, most inadequate safety net among modern industrial nations!

FDR’s strategy for justifying SS was great for the 1930s, when we were still on the gold standard. But nearly 80 years later it’s time to move on to his economic bill of rights as our justification for entitlements, and stop reinforcing the idea that it’s only an entitlement if one pays for it.

It’s time to stand on the over-riding moral argument! It’s time to say that when a nation like the United States can afford to implement these rights, as the United States has been able to do at least since 1971, they then are human rights that must be implemented as part of the public purpose. Let us have a Green New Deal with a stronger social safety net including greatly increased payments for SS, and Medicare for All, and a Job Guarantee (see below) emphasizing Green Jobs!

State revenue sharing

The Government would provide a one-time grant of $1,600 per person to the States for re-hiring laid off State Government employees. The fiscal multiplier from this isn’t clear; but since most State employees are middle class; it will probably be in the range of 1.2, provided it is funded through deficit spending using HVPCS. This program, after filtering through the State Governments, would add about $500 Billion to the private sector before the effect of the multiplier is felt.

Pass a Job Guarantee (JG) program

The JG Program should guarantee a job offer at a living wage, with standard high quality fringe benefits including access to Medicare for those in the program, to those who want to work full time, but haven’t found such work available in the private sector. It should NOT replace Unemployment Insurance, or other programs currently in place. It should NOT offer jobs in Federal programs already legislated. It SHOULD employ people at jobs of great public and social value.

The jobs should be defined by local governments, community non-profits, and the participants themselves. To the extent possible, they should be “Green Jobs” aimed at healing the environment, or jobs enriching the cultural life of local communities, or jobs enhancing the commons of local communities. But the more general rule is that they should be jobs that produce socially valuable outcomes to the local communities creating the jobs with Federal funds.

MMT economists are not agreed on the size of the living wage which would be offered. I’ve seen JG wage rate proposals varying from $8.00 to $15.00 per hour. Differences seem to be based in relative degrees of caution about administering too big a shock to retail businesses dependent on relatively low wage workers. All MMT economists, however, are agreed on the need for JG jobs to offer vacations, holidays, Medicare-based health insurance, and other quality fringe benefits, other than unemployment insurance.

My own view on the JG wage is that it should begin at $10 per hour in the lowest CPI indexed SMSA area in the United and then be adjusted upward based on the ratio of the CPI in an area to the lowest CPI area. That would mean that the living wage in the New York SMSA and other comparable high cost areas might be as much as $24.00 per hour.

I know this would have a heavy impact on retail businesses; but I think that businesses who need to pay less than a living wage to their employees to stay in business aren’t viable private sector organizations, and should not survive. If some businesses in this category have great social value; then they can survive by using that social value to seek help from non-profit, community organizations, who can assign employees in the JG program to help those businesses.

The JG would be implemented as a “mop-up” and full employment maintenance operation most probably at about $45,000 annually per job including fringe benefits and Administrative costs. It would probably apply initially to 10 million people still not fully employed as a result of the impact of the first two measures. It would be a deficit spending program.

Since the private sector would be hiring off the JG rolls and shrinking the size of the JG as the economy heated up, I estimate that it would inject about $225 Billion into the private sector over a year’s time. The program would produce and maintain full employment, defined as everyone who wants a full time job at a living wage can get such a job offer and accept it or not as they wish.

In Part III, I’ll offer my proposals for the President doing some economic and social justice.

22 Responses to What Would You Have the President Do? Part II, Getting to Full Employment

He KNOWS what To DO, as sure as FDR; but he’s a coward with JFK (et al) on his Bush: ‘Last year, pressed by progressive donors at a dinner party to act more like the progressive they thought he was, Obama responded sharply, “Don’t you remember what happened to Dr. King?” ‘

What can I say? First, I’m obviously trying to unmask the Obots and by extension the President. Second, he has the Secret Service protecting him. MLK did not, and the SS is a lot better now at protection than they were during JFK’s presidency. And third, Obama’s a neoliberal, so I’m not certain he does know what to do even though all kinds of people have tried to tell him. That said, I agree he probably does know and that his speech was orwellian because his neoliberal values mean that he will do things for the 1% rather than for the 99% anyway, rather than follow an FDR-like path.

My sense is that the “job garauntee” is way too much like the “right to work” tried by France in 1848 and is bound to fail for the same reasons. An approach that would likely get more private sector support would be to elect representatives who have the creativity and appetite to apply whatever surplus resources the economy provides, then let the scorekeepers figure out how to make the numbers add up. Whether the grandiose plans of these representatives involve using up surplus resources, specifically labour resources, by increasing private sector demand through tax cuts or undertaking major public projects (how come we don’t put equestrian statues dedicated to every random regiment on every street corner anymore?) doesn’t particularly bother me.

I think the historical record shows the workshops were closed due to political opposition from conservatives, the fear that those workers were being radicalized by socialists and might overthrow the government.

Yes, one of the first places I looked, (see also Marx , The Class Struggles in France, 1848 to 1850 – & his approval there, in spite of his clumsy [wrong-headed] use of the word “clumsy” on “the right to work”) but what you meant, while very interesting, is still obscure. The US experience and history of pragmatism, the global position of the USA, the anemic world economies strongly suggest that the petite ( & grande) bourgeosie would not suffer, but would benefit, would be able to deleverage and prosper with a JG. Nothing succeeds like success. The US has a modern (or ancient) fiat currency and even is still relatively independent of the rest of the world, unlike 1848 France.

The point of the JG is that it is the ONLY or BEST way “to make the numbers add up”. Because of the variability and unpredictability of increasing/fine-tuning private sector demand, particularly the instability of investment and finance, any other plan will either be too grandiose (inflationary) or insufficiently grandiose ( wastefully and pointlessly unemploy many).

Thanks. It’s apparent from the article that the Second Republic situation isn’t similar to ours. One difference is the money system. the French were evidently on the gold standard. We have a fiat currency, and would always be able to fund the JG. Also there will always be JG jobs. A third difference is that we don’t have a class structure similar to France characterized by conservative peasants. Fourth, everyone without a job across the country would be able to turn to the JG. And fifth, the JG would force private businesses to pay higher wages making JG popular across the country. There are many other differences too; but the bottom line is that the analogy is a poor one, as many historical analogies are.

I think you might be minimizing the scale, “conservatism”, and political clout of the modern American “petite bourgeosie”. Republicans still manage to collect nearly as many votes as Democrats across the country. There hasn’t been an increase in the minimum wage in decades. Unions outside the public sector are basically non-existant. These developments are not merely the result of pressure from elite financiers. There aren’t enough elite financiers around to win elections. Clearly, many others out there also wanted these developments to happen. These people don’t truly dislike deficits. How many really complained about the Reagan and Bush deficits? They dislike deficits that aren’t funneled through them.

You may be right about the power of conservatism, but the majority of Republican voters aren’t conservatives. They are just the most active and intense of the Republicans. On the miniwage the last time it was changed was in 2009. See here. Agree on the weakness of the unions. But, on the elite financiers, I think they do exert great power through setting agendas in the media and the Congress, and the influence they have over candidate selection and financing They still do have people they oppose win elections however.

Finally, the deficits resulting from my program would be “funneled through” most of the people; so I think they would like those deficits, especially since in my plan they would not be associated with increasing the national debt.

You bring up a very interesting example and points, but I don’t think they are decisive against a well designed JG. Part, most of the reason that Republicans bring in those votes is because the Democrats since Carter have drunk even more Kool Aid – the Democrats decided to become the party of austerity, and the Republicans the big spenders, switching their roles since FDR.

But the difference between Paris and the provinces back then shows why regional cost of living adjusting a JG can be dangerous – economically, as I suggested below, and politically as you point out. Back then rural and other taxes were raised to “pay for” the National Workshops, fostering conflict between working classes and the also financially precarious petit bourgeosie. Now it would be a win-win for everyone. The benefits of good deficits, New Deal, JG spending go to those who need it most immediately, but arrive at everyone else very quickly through trickle up. And no new taxes are needed in a modern financial system. The USA is imho the best candidate for a JG in the world, the place it will most likely win first.

I think the Great Recession has changed many minds, many of the modern petit Republican-voting bourgeosie. It would have been child’s play for a canny politician to channel the universal wrath at banksters into a New New Deal, a JG in the last few years, but Obama simply didn’t want to do anything to benefit the people who voted for him, as opposed to his pay/puppet-masters.

But what would a person on a JG do that some self-employed professional or a small (or any size) businessperson wouldn’t prefer to have the contract to do him/herself? And wouldn’t such a person agitate politically, as unions and businesses have agitated historically against convict labour?

At a total gain of $40,000 per year for a service they’re not performing now. They can agitate alright, but they’d just be in the position of asking for welfare, while also asking to be able to depress wages for their workers way below the JG wage. There’d be no market justification for them to perform these contracts. There only claim could be that they could provide guaranteed transition jobs at a JG wage more efficiently than the Government. But in the JG context, there’s no way they can do this because there’s no way for them to lower the cost of the wages and fringe benefits sufficiently low for them to realize surplus nominal value. Short hand: They can’t do ot cheaper. They can’t do it more efficiently, because there is nothing to sell in a market where consumers might be willing to pay higher prices.

Adjusting the JG wage is problematic. Much of the extra money would just go for increased rent and to rentiers, could feed inflation, especially if it is constantly adjusted according to relative CPI changes. Directly fighting this, by building public housing and slashing mass transit prices, for instance, could be better uses for the money. The last would be very popular with all classes in NYC, and very Green too.

Worries about fast food impacts are silly. McDonald’s has notably lagged in automating, employing far more than necessary because people became cheaper than machines – a symbol of the false McConomy of the last decades. The JG would employ these workers better, and McDonald’s operations would just become more like Wendy’s.

Note: the JG need not be deficit spending.

Not particularly relevant to this post, but I believe a good way to publicize what MMTers mean by the JG, the heart and soul of their program, a good way to show that it is not “make work” workfare for “the lesser people” would be statements, commitments, that once it is instituted, they, personally will work in the JG for some time, however short, a day doing whatever even. Do all of our MMT academics have tenure, by the way? 🙂

Cal, my proposed adjustment according to the CPI is cross-sectional, but not temporal in nature. Standard KG proposals don’t include it, perhaps because it makes the proposal more complex to get passed. But, I’ve felt for a long time that lack of regional cost adjustments in Federal programs is quite unfair because it ends up delivering much more buying power to people who live in rural areas than in urban areas across the United States.

Of course, people can always move to rural areas to take advantage of the added buying power of the same Federal entitlement payments, but why should they have to leave family, friends, and the areas in which they’ve lived their lives because of the lack of regional CPI adjustments. That seems quite unfair to me, and not in line with my notions about public purpose. Apart from that, the claim that this would be “inflationary” is just too vague and general for my taste. With existing output gaps in place and so large, I don’t think it would any more inflationary than other Federal spending programs. And even it were inflationary, I’d rather have that adjustment and drain off excess demand through taxation than not have the adjustment.

Also, note that I’m with MMT scholars on the point of advocating only occasional temporal adjustments in the Job Guarantee rate. I think it’s important that the JG rate serve as an anchor on the wage rates after the initial shock of introduction of the JG at much higher rates than the miniwage pays today.

Cal, my proposed adjustment according to the CPI is cross-sectional, but not temporal in nature. Yes, I understand that. I still think it has problems, and might not have the benefits envisioned. (Although “not-temporal” elides my point of differing regional CPI rates of increase: either ignore them, in which case why adjust at all, or accomodate, with positive feedback.)

Of course, people can always move to rural areas to take advantage of the added buying power of the same Federal entitlement payments, but why should they have to leave family, friends, and the areas in which they’ve lived their lives because of the lack of regional CPI adjustments. I agree, we don’t want to make people move. My point is that the lack of regional CPI adjustments is not what would make people move. If there were regional CPI adjustments, they would largely just end up in the hands of landlords and rentiers. People in places like NYC would NOT end up with much more buying power. A regional CPI variable JG would NOT do what you think it would do. A better way imho would be to increase the fixed universal JG wage and attack the regional CPI variation directly, lowering costs to everyone, including businesses. Build urban public housing. Make subway fares a nickel, LIRR, PATH etc fares a dime. Avoid taxation as much as possible, and try to control prices as much as possible through other means. And although it is regional and not mainly temporal, I think some of the same effects as Scott Fullwiler recently mentioned in a comment here about his modeling of how to adjust JG wages for inflation could apply.

My criticism meshes well with reserveporto’s 1848 points above:
As you say above:A third difference is that we don’t have a class structure similar to France characterized by conservative peasants. Fourth, everyone without a job across the country would be able to turn to the JG. That’s what we want to avoid, and regional CPI adjustment might not. What about people going to the city to get the higher JG, as happened back then?

In any case, these are cavils. Any JG would have such stupendously positive consequences across the board, which imho are seriously underestimated by the MMT scholars, so that its success would succeed very well. I just think that the merit of something completely universal, cut and dried, standardized, boring, stable and fixed are very real, but underappreciated.

Good comment, but I think it’s an empirical question you raise, difficult to decide on the basis of theory alone. What we could do in the absence of empirical evidence is to run simulations using different JG alternatives. Between a JG proposal with no cross-sectional CPI, and one incorporating the full CPI adjustment I propose there are many intermediate alternatives. It may be that my proposal would have the negative side effects you conjecture. It also may be that even if it does, there are one or more intermediate alternatives that reduce the unfairness inherent in an unadjusted JG, while avoiding very much of the negative side effects of the intermediate cost adjustment. Simulations would be very valuable in gauging the sensitivity of likely impacts to changing JG cost adjustment policies. I hope what I mean is clear.

The bottom line is that differences of this kind can be resolved at least in the short run through simulation, and more definitively later when empirical evidence about impact is available.